Client Profile

Client 5: Is 75 year old and is in good health. He/she is married with four adult children and two grandchildren. He/she retired from working as senior marketing executive of a FTSE100 company 10 years ago. Their spouse is also retired but is in poor health. Their combined pension pays them 80,000 p.a. The couple have savings of 250,000. During his/her employment he/she was given shares in the company that they worked for which have a current market value 1,500,000. The client is concerned that these shares will fall in value in the future as the company is not performing well. The couple own their own home with no mortgage outstanding which is worth 1,500,000. They are considering moving to a smaller home. He/she is risk averse. Their children are financially independent of their parents but the client wants to begin bequest planning to ensure that their children and grandchildren receive the bulk of their estate.

Assignment pro-forma and guidance

BEAM031 Assignment pro-forma. You do not have to use this, it is optional.

(a) Provide a 200 word summary of the Investor Policy Statement you have created for your client.

(10 marks)

Guidance:

You MUST state which client you have been allocated.

You should also include the following:

Clients age.

Clients risk tolerance.

Clients unique need.

Clients investment objectives (saving to buy a house, retirement etc.)

Clients investment horizon (how long do they want to invest for e.g. 1 year, 30 years etc.)

Estimate of clients total wealth.

Estimate of clients expenditure (i.e. for day-to-day living, holidays etc.).

Estimate of the amount the client has available to invest (wealth minus expenditure).

What investment strategy are you going to recommend (e.g. passive, active etc.)? Why are you making this recommendation?

(b) Provide a table listing all of the investment instruments that you have chosen to include in the final portfolio for your client. Demonstrate that purchasing these investment instruments has not cost more than the total amount of money the client had available for investment.

(10 marks)

Guidance:

List all of the investments you are recommending e.g.

Shares

Bonds

Alternative investments etc.

List all of the individual assets you have chosen for the client. State the number of shares/ bonds etc. that you have purchased, the current market price for each asset and the total amount invested in each individual asset.

State the proportion of cash invested in each category (bonds, shares etc.)

State all figures in UK .

Give the total cost of the portfolio of all investments and compare this figure to the answer you have given in part (a).

(c) (i) Explain which equities you have chosen to include in your client(s) portfolio and explain why you have chosen to include these companies.

(25 marks)

Hint: You will need to explain how the investments you have chosen meet the needs of the client outlined in the Investor Policy Statement.

Guidance:

Either list each company you have chosen to invest in or the mutual fund(s) etc. you have chosen.

Explain why you have chosen each of the equities/ funds and why you think they are suitable for the client. You should use both the characteristics of your client and course material to justify your choice of investments; it is your justification for the choices that you make that will receive most marks.

(c) (ii) Detail each of the investment instruments, other than equities, that you have included in your clients portfolio. Explain why you have included them and how and why you think these investments are suitable for your client(s).

(25 marks)

Hint: You will need to explain how the investments you have chosen meet the needs of the client outlined in the Investor Policy Statement.

Guidance:

List each non-equity investment you have chosen to invest in.

Explain why you have chosen each of the non-equity investments and why you think they are suitable for the client. You should use both the characteristics of your client and course material to justify your choice of investments; it is your justification for the choices that you make that will receive most marks.

(iii) Using CAPM, calculate beta and expected return of your portfolio. How do you think that your portfolio will perform compared to the market? Provide your calculations and assumptions.

(25 marks)

Guidance:

Look-up, or calculate, the beta and expected return of each individual investment.

Using CAPM calculate the beta and expected return of your portfolio.

State how do you think that your portfolio will perform compared to the market and explain why.

You must give the source of any data you use.

For non-equity investment you can used the assumed betas given in the assessment section of ELE.

(iv) Explain the limitations of the portfolio you have created.

(10 marks)

Guidance:

Are there any ways in which your suggested portfolio is not perfect given the needs and investment objectives of your client?

References

You must include references to all of the information you use, both in the references at the end of the assignment and in the text of the assignment. See the document I have put in the assessment section on ELE; Business Schools A Guide to Citing, Referencing and Avoiding Plagiarism.